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Clare
Clare, Family Solicitor
Category: Family Law
Satisfied Customers: 33953
Experience:  I have been a solicitor in High Street Practise since 1985 and have specialised in Family Law for the last 10 years
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I am the beneficiary of a discretionary trust that was setup

Resolved Question:

I am the beneficiary of a discretionary trust that was setup by my many mother years ago for my sister and I. I am going through a divorce proceedings and I've been told a lot of things, one of the key questions seems to be if the trust would be considered nuptial. If the trust is not considered nuptial I've been told that it would still be considered as an asset of mine so they may use "judicial encouragement" to assign some debt to me. If that doesn't work as in I won't pay it, what can they do after that ?


 


One other confusion I have is that is it the beneficiaries or the trustees that the "judicial encouragement" is placed on.

Submitted: 3 years ago.
Category: Family Law
Expert:  Clare replied 3 years ago.
Hi
Thank you for your question.
My name is Clare
I will do my best to help you but I need some further information first.
What debts are there and in whose name?
Clare
Customer: replied 3 years ago.

Actually you answered a question for me yesterday.


 


There are no debts beyond a mortgage on a house with the mortgage value being around the same value as the house.


 


What I was told may happen is a debt would be created and assigned to me personally with the expectation that the trust would provide me with money to pay it off. I'm not going to cooperate with that so I'm interested in what happens after that.

Expert:  Clare replied 3 years ago.
Hi
What kind of a debt - what was the context of what was being said?
Clare
Customer: replied 3 years ago.

I think it was being suggested that the court would assume I had access to the trust as an asset. So they would simply tell me to provide a certain amount of money to house and support my ex-wife with the assumption that the trust will step in and provide that money to me for her. If that money is not then paid it becomes a debt from me personally to her.


 


 

Expert:  Clare replied 3 years ago.
Hi
Have you had large lump sums from the Trust in the past?
Clare
Customer: replied 3 years ago.

no never and there are other beneficiaries. I have had a few hundred pounds a months put into my children's own accounts that have been used for their benefit. This has not happened every month and has been at the trustees discretion.

Expert:  Clare replied 3 years ago.
Hi
How much a month?
Clare
Customer: replied 3 years ago.

£500 p/m but as I say it's always been paid into their own accounts and I've earned my own money.

Expert:  Clare replied 3 years ago.
Hi
is that each?
How old are the children?
Clare
Customer: replied 3 years ago.

yes that's each, 8 and 12

 

The trust has offered to buy the house from me and so pay the mortgage. The mortgage is more than this amount. At the first FDR the judge's primary concern was that I start to use this money to pay the mortgage.

 

With all of this though really the core question is what else can they do apart from create some debt for me personally. Would the next step be to create some debt for the trustee's themselves or just make an order against the trust itself ?

 

The other thing I though of was they may just declare the trust to be nuptial and then divide it up.

Expert:  Clare replied 3 years ago.
Hi
So for how long has the sum of £500 per child been paid out and what has that money been used for?
Clare
Customer: replied 3 years ago.

For a long time, at the moment I spend it on visitation as I live 100 miles away and have them two weekends a month. I also pay for weekly learning support lessons for them so it all gets used up.

 

The reason why I haven't spent it on the mortgage is that the value of the house has been keeping track with the mortgage so it's never been in arrears and isn't in arrears now and there is around 20k of equity in the property.

Expert:  Clare replied 3 years ago.
Hi
So essentially you use it as an extra income for you of £1000 a month
Clare
Customer: replied 3 years ago.

I spend it on the children which is what the trustees want me to do. All of my income is taxed by hmrc. I would describe it more like I have authority to distribute this money in line with the wishes of the trustees of the discretionary trust. The children are also beneficiaries. The trustees have said they are not comfortable giving the money directly to the mother because it may then constitute some dependency or expectation that the money would continue. So they have asked me to distribute the money for the benefit of the children, which I do. If I was not able to benefit the children I would not accept the money into the children's bank accounts, I see it more as a responsibility rather than some income that I can use myself and choose to use on the children. If it was described as an income for me then I would ask the trustees to stop the payments to avoid this confusion and that would be the end of it.

 

Actually it maybe worth saying they have stopped payment for the last two months, I'm not sure if there is some confusion with payment instructions or they didn't have cash on hand as I haven't looked into it but it could be that they don't want to make further payments until the court case is completed I'm not sure but either way if there are any issues with this then it would be stopped.

 

To be honest the trustee's intention is that the children who are beneficiaries of the trust should benefit from this money in their childhood. As long as the trustees are comfortable with how I'm carrying out that benefit then they are the only ones who I have to justify to how I spend their money, nobody else.

Expert:  Clare replied 3 years ago.
Hi
Remind me how much your mortgage payment is?
Clare
Customer: replied 3 years ago.

The mortgage is a deferred interest mortgage. So a private offshore bank has lent me some money and has taken a first legal charge on the property. A 3rd party has guaranteed the loan with the bank for me. So there is no monthly payment as such but the interest rate follows standard hmrc rate so is a commercial loan and the value of the property has essentially kept track with the value of the loan but is now a little above.

 

The reason why the judge at the previous FDR told me to use the money to make mortgage payments was because at the FDR last year the house value was less than the loan and he was concerned that the bank would start to call in the loan if repayments were not started to make up the difference. There seems to have been some quick rise in house values in the area the house is in and we had a surveyor complete a valuation and it seems it's now like 20k above the value of the loan. But as I said before without a rise in house prices I couldn't actually afford the interest payments and the capital gains tax grace period for houses is finished as I don't live there so the only viable solution is for the UK trust to purchase the property basically for the children's sake using the children's trust fund and the mother can stay their also.

Expert:  Clare replied 3 years ago.
Hi
How much is the house actually worth?
What income do you have from ALL sources?
Clare
Customer: replied 3 years ago.

I don't really want to say an exact figure but it is significantly more than the average UK house price.



I am currently a full time student and have been for last year also as I was not able to continue with my consulting business because of the move away from my previous house and the area it was in enabled me to get into London. I have some savings and have been using those to pay lawyers and I live at my mothers so my expenses are low. So I don't currently have any income.

Expert:  Clare replied 3 years ago.
Hi
I would think that the risk is that this will in fact be seen as income which is available to you since it clearly is and has been for some considerable time and you may be ordered to make payments (towards the house most likely) based on this.
If you then refuse to do so the ultimate sanction is imprisonment\
Please ask if you need further details
Clare
Clare, Family Solicitor
Category: Family Law
Satisfied Customers: 33953
Experience: I have been a solicitor in High Street Practise since 1985 and have specialised in Family Law for the last 10 years
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